Term
| Describe four phases in the cash conversion cycle |
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Definition
1. Purchase supplies, facilities, etc
2. Build Inventory
3. Provide/Sell Services and Products
4. A/R Collect Revenues |
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Term
| Describe 8 major objectives of treasury management |
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Definition
1. Maintain liquidity: ensure company's ability to meet current and future financial obligations in a timely and cost-effective manner.
2. Optimize cash resources: Establish policies and procedures, and implement strategies and manage holdings of non-earning cash balances while providing adequate liquidity. Invest excess cash balances to generate interest income, or pay down debt to reduce interest expenses.
3. Maintain Access to Short-term financing: Establish and maintain reliable access to short-term borrowing facilities at the lowest cost possible. Use short-term borrowing facilities to finance a company's working capital gap created when the operating cycle produces cash outflows that precede cash inflows.
4. Manage investments: Invest excess funds in a prudent manner for both short-term and long-term needs; the preservation of principal is the primary objective, followed by liquidity and maximizing overall return; investment activities should also be in accordance with a board-approved investment policy.
5. Maintain Access to Medium- and Long-Term financing: Maintain access to medium and long-term debt and equity financing to support planned asset expansion, as well as the firm's existing asset base. Provide the financial flexibility necessary to exert strategic action when investment opportunities arise.
6. Manage financial risk: Identify, measure, analyze and mitigate or remediate a company's exposure to many types of financial risk, such as interest rate, foreign exchange, counterparty, operational, etc.
7. Coordinate financial functions and share financial information: Collaborate with other internal divisions and departments to coordinate financial functions and share financial information. Effective communication with other divisions and functions is essential to ensure the achievement of treasury's goal to utilize cash as efficiently as possible.
8. Manage external vendors: Manage relationships with external vendors, including but not limited to banks and other financial institutions, to make the most effective use of financial assets while minimizing risk and expense. |
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Term
| Describe 5 items that the board of directors must grant to management the authority to do |
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Definition
1. Open, close and modify bank accounts
2. Establish credit facilities
3. Oversee investments
4. Issue debt and equity securities
5. Devise, implement and execute risk management strategies |
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Term
| Describe 6 tasks typical to daily cash management |
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Definition
1. Preparing a cash position worksheet
2. Monitoring cash balances on deposit at financial institution
3. Collecting, concentrating and disbursing cash
4.Investing and borrowing funds on a short-term basis when needed
5. Researching and reconciling exception items such as unexpected charges on bank accounts, missing deposits and uncleared checks
6. Coordinating functions with other finance areas, such as A/R, A/P, tax and accounting |
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